ROME, (Reuters) – Italy’s economy shrank 12.4% in the second quarter from the previous three months, preliminary data showed on Friday, due to dipping activity during the coronavirus pandemic, but the decline was less severe than many analysts had predicted.
FILE PHOTOS: People wearing protective masks are seen at a supermarket in Posillipo, near Naples, Italy, March 10, 2020. REUTERS / Ciro De Luca
The quarterly slump in gross domestic product (GDP) in the eurozone’s third-largest economy was “unprecedented”, the ISTAT national statistics bureau said.
On a year-on-year basis, second quarter GDP dropped 17.3%, ISTAT said.
Analysts surveyed by Reuters forecast a 15.0% quarter-on-quarter contraction and an 18.7% year-on-year decline.
All segments of the economy suffer, said ISTAT, without giving details.
ISTAT also revised its reading down for the first three months of 2020 to provide a quarterly decline of 5.4% and a 5.5% decline compared to the same period last year. These were previously given respectively 5.3% and 5.4%.
Italy has been one of the hardest hit countries in Europe by Covid-19, recording more than 35,000 deaths since its transmission was revealed at the end of February. Seeking to stop the spread, the government introduced rigid restrictions on trade and travel on March 9, forcing most businesses to close.
The locking has gradually subsided since May 4 and most of the economy is still sick.
Italy’s official estimate is for a full-year GDP contraction of 8% this year, although Economy Minister Roberto Gualtieri said this might need to be revised lower. The Italian bank expects 9.5% negative growth and the European Commission expects the economy to contract 11.2% – the sharpest decline in the 27-nation bloc.
Spain reported earlier on Friday that its GDP contracted 18.5% in the second quarter from the previous three-month period, while in France GDP fell 13.8% and in Germany it fell 10.1%.
The Italian government has announced measures worth 75 billion euros ($ 89.18 billion) to help companies and families overcome the crisis and said it would present an additional 25 billion euro stimulus package in early August.
Of course, all the fortune tellers immediately tried to look forward and pointed out that after loosening the lockdown in two months, the economic engine had begun again and the low point was behind us.
From dark basements to light
The economy will “definitely” grow again in the third quarter, and will even grow significantly – some surveys even signal a “rapid increase” back on the growth path.
Others noted “easing pessimism” among businesses.
DW, Henrik Böhme
All this does not require in-depth knowledge of the subject: after all, the German government has compiled the largest possible economic stimulus package, which quickly takes effect.
And what’s more: Anyone who comes out of a dark cellar will see the first ray of light relatively quickly.
But this evil virus not only makes people sick or even kills them, but also mercilessly brings about company problems.
So if they can barely keep their heads above the water before the pandemic, maybe money from Berlin will help for now. But when that support disappears one day (and that day will come), it will be dark and gloomy for many people.
A planned economy, not a market economy?
After all, how long can the state maintain its protective umbrella, protect companies from bankruptcy and intervene in the market? This is a part of everyday life in a market economy where companies come and go because they cannot withstand the storm of crisis.
According to a survey conducted by the Munich-based Ifo Institute, one in five companies believes its existence is threatened by the coronavirus crisis.
Credit insurance company Euler Hermes predicts “an unprecedented wave of bankruptcy,” which will also affect Germany. And that can affect any industry. Aviation and tourism are very risky. But sectors that have suffered for some time – such as retail, for example – also face challenges.
The decline in traditional German department stores, remnants operating under the name Galeria Karstadt Kaufhof, will be dramatically accelerated by the crisis.
The situation in the automotive industry is also bleak and poses a real threat to the labor market. Business has been bad there for some time now, with this sector greatly affected by the diesel emission fraud scandal and the immediate transformation of the internal combustion engine. And now COVID-19 has acted as a catalyst to accelerate change.
The IG Metall trade union sees around 300,000 risky jobs. And not only large car manufacturers are at risk, but also many medium suppliers or machine tool makers. Of the latter, no less than 80% of more than 6,600 companies complained about a “real or serious” decline in demand. The machine tool sector employs more than one million people, more than the automotive industry.
What needs to happen now
Not enough bad news? Germany’s export-oriented economy is likely to suffer more because important markets such as the US, as well as countries like Brazil and India, do not really control the pandemic.
And there is another problem: The number of companies with high debt and low profits is currently increasing dramatically, not only in Germany, but also in other European countries and the US. In other words: Profits will not be enough to pay interest.
That’s a vicious circle. Debt itself is not a bad thing. Volkswagen, for example, has a debt of $ 192 billion (number one in the list of companies in debt), but the company can always serve its creditors. That’s the important thing. However, many companies cannot do that because of a pandemic.
So what should happen now, so that autumn and winter (because of the possibility of a second coronavirus wave) does not become darker? The German government must examine where it can help in certain fields, where maybe the economic stimulus package needs to be adjusted again. Above all, the short-term work scheme must be extended and the bankruptcy law must be adjusted.
Maybe there will be a vaccine soon – and everything will be fine. However, for many companies that have the wrong business model, it can even be too late.
“It’s clear that it was a terrible quarter for Germany,” DW Chelsey Dulaney said. “We are seeing a downturn basically throughout the economy.”
More European data to come
In March, the German economic advisory panel agreed that the ongoing coronavirus crisis would deal a major blow to the country and forecast a 2.8% decline in gross domestic product for the year as a whole.
It is no coincidence that when Foreign Minister S Jaishankar spoke of the need for India to reduce excessive vigilance in foreign and trade policy, Ruchir Sharma, global investment strategist, wrote in Times of India that the winners in the post-Covid-19 world might not be the US or China, but German competently secretly.
Jaishankar made two important points in discussions with businessman Sunil Kant Munjal and C Raja Mohan’s strategic affairs analyst, broadcast by CNBC TV-18 just. On trade, he is clear on that India has not reached much of a free trade agreement (FTA). “The fact is they (FTA) have not served the economy well in terms of building our capacity. I think there is a way to engage the world that doesn’t have to be FTA-centric. “
On broader geopolitical and global issues, Jaishankar said India had abandoned misalignment because it was a relic of a different era. Without giving up independence in foreign policy, India must now begin to take risks and engage with other players with greater self-confidence and the articulation of our smarter interests.
“If we want to grow by exploiting the international situation, then you have to exploit the opportunities out there … Either you are in the game or you are not in the game … I would say that the era is very cautious and … greater dependence about multilateralism, that era to some extent behind us. “
While relations with the US and China or Russia will always be important, Jaishankar should see Germany as a growing superpower. According to Ruchir Sharma, Germany emerged stronger after the Covid-19 pandemic because it not only handled the health crisis proactively, but also handled the economic collapse very well.
Writing Sharma: “Because Germany entered into a pandemic with a government (budget) surplus, it could support families and businesses through locking up with assistance of 55 percent of GDP – one of the most generous rescue packages in the world. It could and would, for the first time time, to provide emergency stimulus funds to European neighbors who have long complained that German parsimony hurts the whole continent. The move is intelligent and generous: These countries are now more able to pay for German exports than they should. “
Obviously, Germany will be the engine of European growth after the Covid-19 pandemic is behind us. It might even play a greater global role because the profile of the US, China and Japan is shrinking. Germany has the right fiscal stability, high country capacity, and developing technological prowess that can ultimately rival the power of the US or China.
For India, which is always struggling with small and medium sectors that are very inefficient or very vulnerable, Mittelstand Germany – the middle sector which is mostly family-owned and competitive which provides the majority of jobs and growth impetus – may be something to be learned from.
India’s main partners for future involvement are clearly the US, Germany, Japan, Britain, France and Russia among the major powers, two more for defense and nuclear involvement. The remaining four are relevant for economic and defense involvement.
In the post-Covid, post-Trump world, we can expect the power structure to change significantly.
One, the diminishing role of the US. The realignment of global power that began under President Barack Obama (after the very expensive war on terror and the 2008 financial crisis by George W Bush) has been accelerated by Donald Trump’s semi-isolationist policy. This trend will continue even after Trump has left, perhaps starting next January, because America has lost its appetite for playing globocops. The key role of the US is the economy, especially in technology, where it leads the world, and in the supply of defense to the world of democracy.
Two, France and Russia will remain an important defense relationship for India – and also a source of diplomatic weight at the UN and a global playing field where India’s weight is far below that of China.
ThreeChina is a major enemy, and its power journey is likely to increase as the world seeks to reduce its strategic dependence on its factories and build its determination to balance its military strength in Asia.
China has played its role excessively by threatening almost all of its neighbors, something that must be shunned. The main job of the world now is to enable this Chinese war retreat without losing face for the Chinese Communist Party.
The party’s longevity, however, cannot be considered. At some point in the coming decade, party forces must shrink or collapse under the weight of their own contradictions. China currently operates an authoritarian surveillance regime in the context of free trade and free information flow through the Internet.
Two – control and free flow of information – cannot coexist indefinitely. One can only hope that the collapse of the Communist Party in the future will occur without major disruption as happened in the case of the Soviet Union.
Four, India needs to cultivate special ties with Germany, the most successful economy in the world today, and with a recognized strength in manufacturing. France and Britain are the other major powers to engage bilaterally for nuclear and economic partnerships. With Japan, India already has deep ties, but Japan’s economic strength has peaked. Germany not yet.
At Jaishankar, Narendra Modi has made an inspired choice. If he, and Trade Minister Piyush Goyal, can partner to create a solid trade and geopolitical partnership-based approach to engage the key strategic allies outlined above and contain threats from China, India will reach a major stage before the decade comes out.
The next two super midi countries are Germany, and hopefully India, No. 4 and No. 5 in terms of gross domestic product (GDP) now.
Economist Lee Sue Ann of UOB Group reviewed the latest set of data releases in the UK economy.
“The expansion of the UK economy is much weaker than expected in May, raising doubts about how quickly the country can recover from the depth of contraction caused by the COVID-19 pandemic. GDP expanded 1.8% m / m in May, lower than the expected 5.5% m / m speed, and caused the economy to contract by nearly 20% over the past three months. “
“Overall, the service sector, which forms about 80% of UK economic output, grew by only 0.9% m / m in May, following a 19% m / m decline in April.”
“Inflation unexpectedly accelerated in June, driven higher by the cost of clothes and games. CPI increased by 0.6% y / y, after the May four-year low reading of 0.5% y / y. Core CPI, which excludes volatile energy and food prices, rose to 1.4% y / y, from 1.2% y / y previously. “
“The unemployment rate remained unchanged in May at 3.9%, far better than expectations for a rise to 4.7%. Changes in the number of claimants indicate an unexpected decline last month … These figures will be highly scrutinized next month, because it remains to be seen whether some employers have tried to advance in the game related to giving notice to staff before the cliff hits pay cliffs. “
“We believe the latest move by the BOE is unlikely to mark the end of its efforts to counter the economic downturn, and we expect a further extension of GBP100bn at the November meeting. The next option is for the BOE to make changes to the Term Funding Scheme (TFS). This can give lenders access to funding below the Bank’s rate, assuming they increase lending to businesses (especially SMEs). “
“The Office for Budget Responsibility (OBR) has predicted that the UK economy will shrink by 12.4% by 2020. Our 2020 GDP forecast is at -7.6%, but much will depend on how quickly consumer confidence recovers.”
Disaster, according to them, tore the curtain from the problem that was lurking below.
But they can easily be used to hide the same suppurating wound.
When Reserve Bank governor Philip Lowe makes his annual speech tomorrow to the Anika Foundation, he will return to the two most pressing problems facing the nation and the global economy: unemployment and swelling government debt.
While it’s never wise to predict the RBA governor’s speech, a betting player can do worse than poking at the idea that the central bank will urge Prime Minister Scott Morrison and Treasurer Josh Frydenberg to be careful of the wind on Thursday, when they renew the country in position Budget, and keeping work support payments flowing.
At times like this, there are very few alternatives, especially because the RBA has run out of conventional economic weapons and is reluctant to carry out radical experiments like negative interest rates.
While Mr. Lowe is usually a little wiser, even nuanced, you might be able to summarize his message to the government as follows: Forget debt and deficit disasters, at times like this, debt and deficits don’t matter.
He has already won the first point. The 2013 election memes have long been abandoned after national debt doubled under his supervision even before the current crisis.
But the second point is a bit more problematic.
Although he never fulfilled his promise in 2013 to provide a surplus in “every year” from his first term, completely discarding the idea of a surplus for the future, many senior members of the government were nervous.
After all, it spent half a century preaching the crime of deficit and the sanctity of surplus.
But are there choices?
The decline began to spread
The last few weeks have seen significant softening in rhetoric.
After insisting that payment of work benefits – Job Seekers and Job Seekers – will be shut down at the end of September, the Prime Minister and his senior colleagues have talked about “target” support, especially for workers in industries that are slow to recover.
It is now clear that without continued support, unemployment will skyrocket and consumption will decline, harming profits and threatening the survival of many businesses.
It will turn a terrible situation into a disaster, prolong the recession and ultimately lose more production.
Already, we are beginning to see the broader employment impact of the economic crush inspired by COVID-19.
The number of jobs in June last week may have shown a big swing in hiring, with 210,000 jobs created. But they are all part time. Around 38,000 full-time jobs evaporated, indicating that companies that were not initially affected by the closure are now feeling a pinch of wider decline.
However, there are indications that the Government will provide an optimistic recovery assessment on Thursday, even though it did not win enough like Back in Black extravaganza last year.
The investment bank UBS anticipates the Economic Statement will only be slightly less bullish – the brown line in the chart below – than the most optimistic scenario of the Reserve Bank delivered in May – the dotted red line.
Even if that is the case, pandemic costs should be noted. The thin black line is where the economy should head before closing. Even with the brightest projections, it will take more than one year to return to where we are.
If that bright projection becomes a reality, growth will probably tell the story of a speedy recovery. But the total amount of production and work will be long, slow and painful.
Debt, debt, and more debt
So far, the Commonwealth has committed only $ 150 billion to sustain the economy. Add in state expenses and incoming bills of around $ 185 billion. Then there is a further $ 26 billion in tax cuts, brought by the Treasurer in an effort to increase spending.
For the financial year that just ended, UBS chief economist George Tharenou gave a tip of a $ 81 billion deficit and for this year it was $ 194 billion.
The only way the government can fund it is through increasing debt.
For decades, our government debt was almost non-existent, despite hysterical claims from Opposition Treasury spokesman Joe Hockey ahead of the 2013 elections.
Total government debt, including states, is likely to rise from 52 percent of GDP two years ago to more than 80 percent of this financial year.
While Australia will still be on the low side globally, it is because most other countries started this pandemic with a much higher level of debt than us.
How do we pay it back?
This is not the first time we have to mess up our future to get out of the hole.
Debt levels surged during the Great Depression of the 1930s and after the war, Australia found itself very deep, reaching 120 percent of GDP. That is far greater than the forecast we will see from the Ministry of Finance on Thursday.
Fast payments in the 1950s occurred mainly because of inflation. The postwar boom saw rapid economic growth and expansion. This is a simple mathematical phenomenon.
If you measure debt in terms of the size of your economy, then the problem disappears as your economy grows.
At present, we don’t have that luxury. Inflation has been stuck in the slow lane for the best part of a decade and for the past four years at a level well below the 2 percent target set by the Reserve Bank.
But we have two factors that benefit us.
The first is interest rates. They have never been lower in the course of human history. The US, the world’s largest economy and reserve currency, has an official rate of zero. It makes debt affordable, at least for now.
And the second, apart from recent events, is that we remain one of the least indebted countries on the planet, especially because every other country has increased its loans to overcome the shutdown caused by a pandemic.
Australia remains one of only 11 countries with a triple A credit rating. Even the US does not have it. That is why, when the Australian Government last week went to global investors to borrow a further $ 17 billion, it was almost crushed.
International investors cannot get enough Australian Government Bonds. They want to lend us money.
Our real debt problem
That doesn’t mean we don’t have debt problems. We do. It’s just that it’s not government debt.
Our problem is household debt, with you and me. Collectively, we are forced into our eyes, mostly to cover our real estate purchases.
Combine that with the weakest wage growth in history, and that far explains why the economy stuttered long before the pandemic struck.
That is the reason why the Reserve Bank cut interest rates three times last year, using most of its ammunition in the process.
The Minister of innovation, science and industry, Guillermo, Ben, in may announced the new strategy of the Council of industry is mandated to give advice on how the Federal government can speed the recovery from a deep COVID-19 recession. Chaired by former CEO of Desjardins, Monique Leroux, the Board is composed of distinguished leaders of the private sector in Canada.
At the initial stage, an important task for Council members to get an idea of the sectors that have the greatest impact on driving in Canada is $2.2 trillion economy.
To this end, the Board must first examine the composition of international exports of Canada to see what the global market wants to buy from canadian companies. Second, Council members should meet with value added or real GDP per hour of work the contributions of the various industries that constitute the private sector of the economy.
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Since export data are evidence of the continuing Central role of natural resources in canadian exports. In 2019, nearly half of total canadian exports of goods and services combined – have been granted in the mining, energy, food and timber industries. Looking only at the export of goods, natural resources, generate about three-fifths of export earnings. Only the energy accounted for nearly one-fifth of the total volume of Canada’s exports last year, with oil and natural gas account for the vast majority of energy of the country’s export earnings.
Why pay attention to the export? After all, when buying canadian goods and services, international clients of the alarm, where Canada is in a global comparative advantage. For any industry involved in the trade, ability to sell, profitable and on a scale to world markets is a litmus test of competitiveness.
The revival of exports must be a key part of the plan of salvation of Canada. Quantitatively, the best possibility of essential increase of export revenues is not a small niche sectors, and in industries that are already evident in the structure of Canada’s exports. Characteristics of natural resource industries in this list, along with transportation equipment (14% of total exports) and commercial services (11 per cent).
The second task of the Council must look at “value added” prepaid contribution to the economy of different industries. Tracking in real GDP per unit labor costs in the industry, that is, productivity – indicators, which are private sector enterprises, to serve the outsized economic system.
High-performance industries tend to have intensive use of material, human and intangible capital, the introduction of advanced technologies and economies of scale. They are catalysts because they create demand for other goods and services through the entire economy.
Mining and oil and gas extraction generate – today – the highest level of real GDP per hour of work, for utilities, real estate and rental and leasing information and cultural industries, and Finance and insurance.
In COVID-19 pandemic punched a significant hole in the economy of Canada. This hole should be filled quickly. Although some recovery of employment and business activity is expected to balance by 2020 the international monetary Fund says that Canada is suffering this year by as much as 8.4 percent drop in GDP – a much greater decline than in 2008-09.
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One of the key to revive the economy is a great economic system of the country. It does not need to involve a heavy burden on the budget, but rather a fine tuning of the tax of Canada and the regulatory framework that they are not too inefficient, outdated and discouraging private sector investment and jobs, especially in the leading industries. Without the power of its main economic engines, Canada may be struggling to recover, grow and compete after a terrible COVID-19 recession.
Jock Finlayson-Executive Vice President and chief officer of policy Business Council of British Columbia. David Williams-Vice-President of the Council policy.
The UK economy shrank in the first quarter at the fastest rate since the 2008 financial crisis when the country was locked in a coronavirus, official data showed Wednesday, leaving it on the brink of recession with a far worse contraction to come.
Gross domestic product – the combined value of goods and services produced in the British economy – contracted by two percent in the January-March period after zero growth in the three months to December, the Office for National Statistics (ONS) said in a statement.
First quarter activity was also affected by Brexit, or the long-awaited departure of the UK from the European Union on 31 January.
Regardless of the data, the British pound managed to edge up against the dollar and the euro, with analysts pointing to the fact that the market expects greater contractions.
London’s FTSE 100 stock index, a lower indicator of the health of the UK economy due to the presence of many multinational companies, fell 0.9 percent nearing midday.
Meanwhile, Britain’s second quarter contraction is expected to be much steeper than the first, causing the country to experience a recession – which is defined as two consecutive quarters of contraction.
UK output dived a record 5.8 percent in March alone, when the UK was locked down, the ONS added.
“March GDP figures show that the UK economy has fallen freely within two weeks of the locking up (coronavirus) coming into force,” said Capital Economics analyst Ruth Gregory.
“And with restrictions imposed until mid-May and then only slightly raised, April will be much worse.”
He added: “To put this into context, during the overall recession of 2008/2009, output fell 6.0 percent.”
The Bank of England (BoE) last week warned that economic paralysis could cause Britain’s worst recession in centuries, with output expected to fall 14 percent this year.
However, Britain is not alone, with the economies of France and Italy shrinking 5.8 percent and 4.7 percent respectively in the first quarter.
The UK implemented COVID-19 locking – which has only just begun to loosen – on March 23.
“With the arrival of the pandemic, almost every aspect of the economy was hit in March, dragging growth to a record monthly decline,” said Jonathan Athow, national statistics representative for economic statistics at the ONS.
“This pandemic has also engulfed global trade, with UK imports and exports falling over the past few months, including a decline in imports from China.”
Britain has seen more than 32,000 deaths in epidemics – the worst in Europe and second only to the United States – although there are indications that the actual toll is higher.
When the coronavirus crisis occurred in Britain, finance minister Rishi Sunak supported employee wages in what was called a “leave” job retention plan, while he had given tax exemptions for businesses and increased welfare payments.
Sunak announced Tuesday that the leave scheme would be extended until the end of October.
The government leave scheme supports 7.5 million jobs, ensuring employees receive 80 percent of their monthly salary up to £ 2,500 ($ 3,100, € 2,800).
The BoE also played its part, cutting its key interest rate to 0.1 percent and pumping £ 200 billion into the UK economy to get loans from retail banks to hit businesses.
While this week, Prime Minister Boris Johnson has begun to loosen some locking measures.
Changes that take effect Wednesday allow people in the UK to spend more time outside, meet friends in the park and see property for sale.
But Britons still cannot visit relatives or friends in their homes.
The Bank of England has warned that the UK economy could shrink by 30% in the first half of the year as a result of the coronavirus pandemic.
The scale of the decline came when the bank’s Monetary Policy Committee announced on Thursday that it had decided to keep its key interest rate at a record low of 0.1% and voted against further expansion of its bond-buying program.
In a statement accompanying its policy decision, the bank said UK GDP was set for “a very sharp decline” in the first half of this year and there would be a “substantial increase” in unemployment outside of workers who had been maintained by them. company as part of the government’s Employment Retention Scheme.
Overall, it is said that the UK economy may have shrank 14% this year, but that depends on how long the current lock restrictions remain in force.
Two of the nine policymakers want to increase the bank’s stimulus program by 100 billion pounds ($ 124 billion).
The bank said that the most timely indicator of UK demand has stabilized at very low levels in recent weeks, after an unprecedented decline during late March and early April. And payment data points to a reduction in the level of household consumption by around 30%.
He also said that consumer confidence had declined sharply and practical housing market activity had stopped. The company’s sales are estimated to be around 45% lower than normal in the second quarter of this year, with business investment 50% lower.